Bank of America has established itself as arguably the dominant force in retail banking with its combination of advanced digital tools and upgraded branches. The growth trajectory of its mobile banking app and its virtual assistant, Erica, has been steep. Erica users have grown to more than 17 million in three years (up 67% in 2020 alone).
The huge small business market is a bit more challenging. That sphere is far more fragmented, and until recently depended heavily on mostly manual processes including finances and banking. But that is rapidly changing.
Still, small business is big business for the number-two U.S. bank. Roughly 3.3 million small firm owners have a business banking relationship with Bank of America, according to Rob Pascal, Chief Digital Officer, Small Business. Of those, 82% are digitally active — meaning they have logged into their account online or in the mobile app within 90 days. The digitally active percentage is about 150 basis points higher than the year previous, he says.
“The real story,” says Pascal, “is digital engagement. The number of digital banking sessions is up far into double digits” as business owners are logging in more often and using the various tools the bank provides. Some of these tools, in fact, have seen triple digit increases of 100%, 200% or more, Pascal tells The Financial Brand.
The pandemic kickstarted business use of Zelle as landscapers and pool cleaners found consumers reluctant to pay them in person by cash or check.
Two examples he mentions are mobile check deposit, in which both the number of users as well as the dollar value of checks is up. Another is business use of the Zelle person-to-person payment application, where the number of transactions, dollar value and number of users are all up substantially. Pascal acknowledges that some of the Zelle growth is because its use by small businesses is new.
When personal banking is added to the mix, a much larger number of business owners — Pascal puts the figure between 10 and 12 million — are served by the bank in some fashion, meaning a business account or a consumer account, mortgage, credit card or a Merrill Lynch account.
Fintechs Focus Big-Time on Small Business
Targeting the small business market has not always been a priority for traditional institutions, large or small, particularly companies at the smaller end of the size range. Transaction accounts, yes, but rarely with credit.
That position left an opening for the fintech community — some of whom, like PayPal and Square, concentrated on simpler and/or cheaper transaction services, while others, like Kabbage (now owned by American Express), concentrated on easy and quick access to credit.
This trend grew to where there are at least 140 fintech competitors providing a variety of financially related services, as noted in a report from consulting firm 11:FS.
Many of these fintechs are small players, but not all. The likes of Square, Stripe, Shopify, Xero and Venmo (owned by PayPal) have grown into major enterprises and, more significantly, have greatly expanded their reach. Square is a prime example of this, having a market capitalization exceeding Citibank’s.
All these options have brought about a material change. As 11:FS states, it’s less important now for small businesses to “graduate” to traditional banking providers than it the past.
When a small business opens a Square account, they can now literally get everything they need financially from them.
Adding and Upgrading Digital Tools for Business
BofA has taken several steps to stack the odds in their favor in small business banking. One was to recognize that business owners are also consumers. Rob Pascal initially worked for the bank on the consumer side and says that helped him recognize that “at the core, every business owner is a consumer. So you’ve got to think about it from both sides.” Some want to have a very integrated banking relationship between personal and business accounts, he adds. Others want to maintain a “church and state” separation.
Either way, these business owners expect consistency and continuity, says Pascal. ” It creates frustration and pain if they have one interface they’re used to on the consumer side and it’s completely different on the business side .”
Pascal says that Erica is fully integrated with small business accounts. In addition to all the consumer-side functionality of the popular virtual assistant, which includes a variety of proactive insights and alerts for consumer, the bank has begun offering insights for business owners as well. For example, Pascal says Erica reminds clients when they are eligible to apply for forgiveness under the paycheck protection program.
Other digitally delivered features BofA has launched:
- Upgraded cash flow dashboard. The bank has redesigned the dashboard of its Cash Flow Monitor, which provides historical and projected views of a business’s cash position. It can be customized by the user to set thresholds and warnings if key balances drop below certain levels.
- Additional third-party dashboard links. A key part of Cash Flow Monitor is what BofA calls “Connected Apps.” These are third-party plug-ins that enable the dashboard to show data not only from the bank, but from various outside sources small businesses often use. In addition to an ADP app for payroll, QuickBooks Online for accounting data, and Google Analytics for website traffic, the bank has added Expensify for expense management and Podium for social media reviews, along with TurboTax and Google Workspace.
- Free small business credit score. In late March 2021, BofA partnered with Dun & Bradstreet to offer the bank’s small business customers free access to their business credit score. The bank presents these scores in a color-coded format showing “Where you are” and “Where you’re trending.”
- Extensive, detailed resources. The bank launched a consolidated educational site called Small Business Resources. The most viewed topics to date relate to access to capital and credit.
Human + Digital Gives BofA an Edge
Though dismissed by some in the fintech community, Bank of America views branches as a significant asset, not a historic relic. In fact, when set up properly, the bank believes, in-person banking gives it a leg up over digital-only competitors.
The reason isn’t just about the need for cash-related services. “Small businesses want the convenience of using digital for most of their transactions,” says Pascal, “but when it comes to getting a commercial real estate loan or an equipment loan, in many cases they want to talk to someone. They want to understand the options.”
Not insignificantly, Pascal states that the small business customers with the deepest relationships and the best retention rates are those that use both physical and digital channels. In addition, he states that “while we’ve seen dramatic increases in digital sales over the past year, the majority of our sales still come through financial centers.”
Despite all that, Pascal has no illusions that fintech competition for small business customers will diminish. On the contrary, the barriers to entry continue to erode, he points out. “In addition, there’s still plenty of room for innovation in financial services for small businesses, where many things are still done manually.”